Shortage would lengthen industry slump


October 21, 1991|By Valerie Rice | Valerie Rice,Knight-Ridder News Service

An executive at one of the largest semiconductor companies in the world is predicting a severe shortage of key new memory chips beginning in the middle of next year.

If that happens -- and some analysts say it's highly possible -- it could be disastrous for computer companies just beginning to pull out of an almost two-year slump.

Hideharu Egawa, senior vice president of Toshiba Corp. of Tokyo, said he believes computer companies won't be able to get enough advanced, 4-megabit, dynamic, random-access memories, or DRAMs, by the latter half of 1992.

The last shortage of memory chips, which began in 1987 and lasted almost two years, caused profits at computer companies to plummet both because they couldn't get enough DRAMs to make products and because the chips they could buy were as much as five times more expensive than before the shortage.

"History is repeating itself," agreed Dan Hutcheson, president of VLSI Research Inc. in San Jose, Calif. "I think the shortage will start next year and get very bad in the 1993 time frame."

Ironically, warnings about a possible memory shortage come at a time when both 1-megabit and 4-megabit DRAMs are in plentiful supply. In fact, there are so many chips on the market because of sluggish computer sales and a flood of new memories from Korea that semiconductor companies around the world are seeing profits dwindle because DRAM prices have fallen dramatically in the past year.

Mr. Egawa acknowledged that Toshiba's profits on its DRAMs were "at the bare minimum right now. A shortage will be bad for our customers, but it will be great for us," he said with a laugh.

But most other Japanese companies aren't joining Mr. Egawa in predicting a shortage, partly because there is such an oversupply of chips in the marketplace now. Several said they believed supply and demand will be in balance over the next few years, and some privately speculated whether Toshiba, one of the world's largest producers of DRAMs, was engaging in a bit of wishful thinking by predicting a shortage.

Tomihiro Matsumura, senior executive vice president of NEC Corp. in Tokyo, said, "I think quarter two is going to be in balance. There are so many companies with large production capabilities, like Samsung and Goldstar, and even TI [Texas Instruments] has increased its capabilities."

But Mr. Egawa argued the oversupply of chips is only temporary. As proof, he pointed to the fact that most Japanese semiconductor companies -- Toshiba included -- have dramatically pared back their manufacturing investments this year. And in many cases the companies have switched their production lines from DRAMs to more profitable products -- all in response to the falling DRAM prices.

The same things happened in 1985 and 1986, causing the 1987 shortage, he said.

Analysts in the United States agreed with him. "I think that scenario is very credible," said Doug Kass, a personal computer analyst with Dataquest Inc. in San Jose.

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